China and Russia do Bilateral Deals for Oil and trade; US tries to acquire wealth through debt

Bloomberg has reported another nail in the coffin of the US Dollar. No, it wasn't a single report that said that, but if you read between the lines on two separate reports you can see it. Read here:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aEl6C1pBm8VQ

By Bloomberg News

June 30 (Bloomberg) -- Russian companies may invest in oil exploration and natural gas distribution in China after the two nations signed an agreement to expand trade, the Chinese government said.

Russian companies may participate in the construction of underground natural gas storage tanks in China, the National Development and Reform Commission said on its Web site today, citing a Sino-Russian cooperation plan approved on June 17. Chinese companies are encouraged to develop oil and gas fields and build gas liquefaction plants in Russia, the commission said.

China and Russia signed an agreement worth $3 billion to cooperate in trade and investment in areas including light industries, high technology and energy, the Ministry of Commerce said on June 17. Oil exports from Russia to China over the next 20 years will surpass $100 billion, Russia’s Prime Minister Igor Sechin said then.

The two nations may set up a joint venture in China to manufacture equipment for nuclear power plants, the government said today.

-- Wang Ying. Editors: Ang Bee Lin, Clyde Russell.

To contact Bloomberg News staff on this story: Ying Wang in Beijing at +86-10-6649-7562 or ywang30@bloomberg.net

And here:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aG7dxkAkzrAk

June 30 (Bloomberg) -- China may soon allow companies in its southern provinces of Yunnan and Guangxi to use yuan to settle cross-border trade with Southeast Asia to reduce foreign- exchange risks, a government official said.

China, the world’s third-biggest economy, is seeking to make it easier for companies to do business in yuan and to expand trade with so-called Golden Triangle nations after the global recession choked sales to the U.S. and Europe. Chinese officials, including President Hu Jintao, have called for reducing its dependence on the dollar and the creation of a new global reserve currency.

The People’s Bank of China has agreed to provide 650 billion yuan ($95 billion) to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through so-called currency- swaps. Yesterday, the central bank signed an agreement with Hong Kong to allow the settlement of cross-border trade in yuan.

Trade in Yuan

Malaysia, Indonesia, Brazil and Russia have all indicated interest in settling transactions in the currency. PT Perusahaan Listrik Negara, Indonesia’s state utility, may negotiate to pay its Chinese suppliers and contractors in yuan to cut foreign- exchange costs, Finance Minister Sri Mulyani Indrawati said on April 24.

“As China’s role in the global economy becomes more significant, it’s natural that more countries will want to trade in the Chinese currency and to hold it in their reserves,” said Pan Hejun, Vice Mayor of Nanning.

Why is this happening? Here you have China moving away from the dollar and ASEAN nations following suit and you have China and Russia inking deals for energy interdependence. Think those contracts will be settled in dollars? I didn't think so.

So what does this mean for the US dollar. As deals like this become more commonplace, the US dollar will be less and less relevant. The world sees our unsustainable spending and knows that it can't continue. Either we will have to monetize that debt (my vote) or we will have to cut the spending (not likely).

Even though other countries do the same thing (or at least try) the US has been allowed to get away with it for 40 years because of our economic, militaristic, and cultural dominance. Those days are ending.

Welcome to a world with a reserve currency no longer dominated by US dollars.

Super Soverign Currency

Pissed off Readers (POS) are taking a look at this:

http://www.reuters.com/article/usDollarRpt/idUSPEK26164620090626

"China's central bank renewed its call on Friday for the creation of a super-sovereign reserve currency to reduce the dollar's global domination, which it said had worsened the financial crisis.

An international monetary system dominated by a single sovereign sovereign currency has intensified the concentration of risk and the spread of the crisis," the People's Bank of China said."

In an essay in late March, Zhou caused a stir by suggesting that the Special Drawing Right, the IMF's unit of account,could eventually displace the dollar as the principal reserve currency."

China and the other BRICS (not to mention all export driven economies) realize (as DeGaulle did back in the 60's-70's) that to rely on the US to not print their FIAT currency like mad is insane. Printing money is the easiest solution to governments that want both guns and butter.

A little history....

Beginning with LBJ the US tried to have it all (and it worked for the most part) by fighting wars against Vietnam and "social injustices" at the same time. Nixon and the Fed continued the some monetary and fiscal policies, but the French (De Gaulle) called him on it by demanding French held US credits be redeemed in gold. On Aug 15th 1971 Nixon slammed the gold window shut. That was the defining moment of the Nixon presidency, not Watergate. But like everything else, the MSM screwed that up too.

So what is happening today? The BRICS are realizing that the US's position as the reserve currency threatens their regimes more than the US's Nukes (at least for the time being). They realize that they have made a Faustian bargain with the US and they are trying to exit their positions in the most financially prudent manner.

That is why you will continuously see stories out of China, Russia, India and Brazil that seem to contradict themselves. They don't. Understand that that BRICS are in a dilemma. And dilemmas don't have good and bad answers. They have bad and less bad. The trick is to manage the situation with as little fall out as possible. Thus the call for SDR's while at the same time buying more dollars.

The thing to watch is what do the BRICS do with those dollars in terms of acquiring hard assets.

BRICS WANT DOLLARS!

Take a look:

http://www.bloomberg.com/apps/news?pid=20601087&sid=ar8G88YR1rlU

So do the BRICS think the dollar is a good investment? No. Then why buy more of it. For the same reason people send good money after bad. The BRICS collectively have between 2-3 Trillion US dollars. If they start dumping them or even *appear* to be dumping them, then that drives down the value of their holdings.

What the BRICS have to do is keep the illusion going that the dollar is sound. That it is strong. That their faith is "unshakable". They have to do that with the right hand. Meanwhile with the left hand, they use those dollar assets as collateral to buy real, tangible assets.

Rare earth metals, http://bbs.chinadaily.com.cn/viewthread.php?gid=2&tid=638041

Oil, http://news.bbc.co.uk/2/hi/business/6086556.stm

US Real Estate, http://www.msnbc.msn.com/id/29162036/

Military build up, http://uk.reuters.com/article/idUKTRE54363X20090504

Of course they need the US dollar to stay strong. The easiest way to defeat an enemy is to lull them to sleep with a false sense of security.

The US is too obsessed with the latest pop event of the day to notice.

http://www.news.com.au/entertainment/story/0,28383,25697785-5019114,00.html

So go long the dollar short term, but in the long term (2020) understand that the US dollar is doomed unless Washington changes it ways.

Sun set to rise tomorrow and Federal Reserve involved in cover up

Shocker!

http://voices.washingtonpost.com/economy-watch/2009/06/rep_issa_bernanke_engaged_in_c.html

Rep Issa charged that Ben Bernake and the Federal Reserve pressure BOA into the Merrill Lynch deal. Of course they did. Then they used future taxpayers to cover the obligations.

I am continuously amazed that people are amazed. You want to fix problems like these?

1. Abolish the Fed

2. Get rid of Fractional Reserve lending

3. Get rid of social spending programs where you buy votes with benefits (Medicare, Medicaid, Social Security)

4. Reduce military spending by 1/2. Pull our forces back to the USA and secure the southern border.

5. Move to a flat tax with ZERO deductions, taxing all income the SAME RATE above the poverty line.

6. Allow vouchers to compete with public schools as equal alternatives to compulsory education.

In short, take back power from the state (in this case the Federal Government) and give it to the people, who should have never reliquinshed it in the first place

Will any of that happen? Of course not. It makes too much sense.

If History doesn't repeat, it certainly rhymes

If you read nothing else this week, check out Bill Bonner's post in The Daily Reckoning.



http://dailyreckoning.com/deja-vu-all-over-again-once-more/

Solutions brought to you by the people who didn't see the problem?

If you have trouble understanding how America will surrender her sovereignty to the BRICS, then read this article:

http://www.washingtonpost.com/wp-dyn/content/article/2009/06/16/AR2009061601887.html?hpid%3Dtopnews

President Obama, JUST LIKE PRESIDENT BUSH did, is seeking to expand Federal Government power in order to "punish" those firms found guilty of financial malfeasance. As long as we keep looking in the wrong places for the answer to what happened in the Crash of '08, then we will never find them.

The America credit system did not become unglued due to lack of regulation in 2008. It came unglued because we have reached a breaking point of trying to pass off debt based consumption as wealth. It is not.

Everyone talks about the fact that the BRICS don't have the domestic consumption that America has.

WAKE UP!!!

America doesn't have it either. It was all a mirage. What do you think is going to happen with increasing levels of debt (that will never be paid off in nomial terms) that America went under to buy all this stuff? We were buying things that we couldn't afford on credit that we should not have had. The party is over and all Washington can do (BOTH PARTIES) is try and come up with a "better regulated" way to have us go deeper into debt.

It is not going to work. And that is why the US dollar is doomed to fail. The Federal Reserve and the US Treasury are going to try and inflate their way out of this (they really don't have any choice in the matter). The BRICS (and other holders of US Debt and US Dollars) are going to quietly exit their positions, or use their dollar holding to acquire *REAL* assets. It will be a gradual process punctuated with bouts of extreme confusion and uncertainty as the world economic systems adjust to the new realities.

BRIC LEADERS MEET TO DISCUSS US DOLLAR EXIT

BRIC leaders are meeting today to discuss how they are going to exit their ginormous holdings of US dollars.

http://news.xinhuanet.com/english/2009-06/16/content_11552492.htm

http://www.zacks.com/stock/news/21127/BRIC+Nations+Discuss+the+Dollar

Of course you won't read that in the article (or any "official" article) or see that in any press release, but that is what is happening.

Think about it. Let's say you own a couple of Trillion of widgets. And you see the manufacturer of widgets say, "Hey world. I need to increase production of widgets by 50% for the foreseeable future" What do you think will happen to the value of your widgets?

That is what is going on right now. The widgets only have value because everyone *believes* they have value. As that belief gets shattered that value will go down. Of course having 10,000 Nukes is a pretty convincing argument to make sure that people keep valuing your widgets as you want them valued, but it is an argument that only works in theory.

Right now, all US dollar holders are talking up the dollar. They have to. They are talking their book. But soon (soon being before 2020) the US dollar will be completely replaced as *THE* reserve currency.

It will still have a role in the world, but it will no longer be the dominant currency that it has been since WWII.

US Still on path to insolvency

President Obama still doesn't get it:

http://www.newamerica.net/blog/new-health-dialogue/2009/health-politics-12514

In his speech, Obama laid out the details for a proposed $313 billion in additional Medicare and Medicaid savings.

It doesn't matter how much you reform Medicare, Medicaid, or Social Security. When you create deficits larger than all of your predecessors going back to George Washington combined, then claiming savings of $313 Billion is a lie.

People don't prosper because you limit co pays, or dictate how much Doctors make, or decide what is a "correct" premium for an insurance company to charge.

People prosper when they are allowed to work and keep what they earn.

People prosper when the currency that they use as a store of value isn't bastardized and raped ad infinitum.

Someone please explain to me how you can claim Billions in savings while racking up Trillions in debt. The math doesn't support it and the Chinese won't for much longer.

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